IPad chip designer ARM wants to crush Intel

BARCELONA, Spain (CNNMoney) -- The company behind the lightning-fast processor in the new iPad thinks it can soon become the predominant microchip business in the world.

Chips designed by ARM (ARMH), the British microprocessor company you've probably never heard of, are in a stunning 95% of the world's mobile phones and tablets, including the new iPad Apple announced this week. ARM's chips represent 30% of the entire semiconductor market sales, which is nearly double Intel's 16%, according to IHS iSuppli.

"We want to see that doubled to 60%," said Warren East, ARM's CEO, in an interview conducted at last week's Mobile World Congress. "We think we've got the right sort of technology for everything from very, very tiny intelligent sensors, through the consumer electronic swathe, right through to servers."

ARM is in a unique position in the chip industry because it doesn't actually make microprocessors. Instead, ARM designs chips and licenses those different architectures to more than 300 companies around the world, including giant players such as Samsung, Nvidia (NVDA), Texas Instruments (TI) and Qualcomm (QCOM, Fortune 500).

The company is particularly successful in the rapidly growing mobile market, partially because it is good at what it does, but also because of the dumb luck of being in the right place at the right time.

ARM got its start in 1991 designing modem chips for cell phones. They were fairly limited microchips that were built for one purpose: to communicate with cell towers without sucking up too much of the phone's battery. But around the turn of the century, handset manufacturers began to realize that there was excess computer power left over in those ARM-based chips that could be used to build a user interface.

Soon after that realization, the "feature phone" was born, which ultimately evolved into the modern day smartphone. Taking advantage of the situation, ARM now designs chips for two purposes: the same-old modem processor and an applications processor that controls the user interface for Android, iOS, Windows Phone, BlackBerry OS and the like.

Demand for ARM-based chips has risen sharply of late, as the cell phone architecture made its way into disk drives, printers, cars, Internet-connected TVs, microcontrollers, and tablets. This year, Hewlett-Packard (HPQ, Fortune 500) is introducing its first server running on ARM-based chips, and Microsoft (MSFT, Fortune 500) will release a version of Windows 8 that will run on tablets powered with processors designed by ARM.

As a result, ARM's share of the overall semiconductor market has soared, doubling in just three short years. Smartphone and tablet sales will continue to help ARM's share rise, and the new markets ARM is entering could help the company arrive at its goal of doubling its share again three years from now. For instance, IHS iSuppli predicts ARM will grow its share of the PC processor market to 22% by 2015, up from practically nothing today.

Meanwhile, semiconductor behemoth Intel (INTC, Fortune 500) tried -- and failed -- for many years to get a foothold in the mobile marketplace, as ARM's 21-year old expertise in power management gave it a leg up.

But recently, Intel scored some big wins after finally convincing handset makers that its chips could play nicely in mobile. Global telecom giant Orange and Indian carrier Lava announced last week that they are planning on shipping a device based on an Intel reference design next quarter, and Lenovo launched a similar phone last month.

Motorola Mobility (MMI), which is being acquired by Google, said last month that all of its future devices will run on Intel chips. And Chinese smartphone giant ZTE said last week that it too would soon begin to ship phones with Intel inside.

Despite Intel's deep pockets and recent surge, ARM isn't fazed. The company believes its power-sipping, mobile-friendly architecture will ultimately become the world's most pervasive.

"Intel's offerings today are better than they were years ago, and undoubtedly there are going to be some Intel design wins," East said. "But I look at the capabilities of those products and see the same kind of capabilities that were in ARM products several years ago."